RESEARCH PAPER
The Welfare State in Egypt, 19952005: A Comparative Approach
Ahmed Ezz Eldin Mohamed| Aug 2014
The Welfare State in Egypt, 1995-2005: A Comparative Approach
Series: Research Paper
Ahmed Ezz Eldin Mohamed | Aug 2014
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Abstract
This article applies the typology of welfare state regimes developed by Esping-Andersen
in 1990 to the welfare state in Egypt as an example of developing countries. The study
surveys the relations between the state, the market, and society from 1995 to 2005, a
period characterized by a shift towards a market-oriented economy, challenging the
historical legacy of the state’s social role. The methodology employs a combination of
quantitative and qualitative analysis while examining the characteristics of seven main
welfare schemes and social safety nets in Egypt. The findings suggest that the Egyptian
current welfare state can be best described as “conservative/informal,” where social
benefits are tied to employment in the formal sector, leading to the family, religious
institutions, and clientelistic networks taking on important roles to meet the social
needs of the larger informal sector. In addition, the study proposes amendments to the
Esping-Andersen typology in order to better understand the welfare programs of
developing countries. Mismanagement, quality considerations, the gap between stated
goals and implementation, disparities created by gender and urbanization differences,
and the role of informal sector should be systematically considered when analyzing
welfare regimes in general, and those of developing countries in particular.
Table of Contents
Introduction
1
The Typology of Welfare Regimes
1
Historical Background of the Egyptian Welfare State
7
Poverty, Inequality, and Social Spending, 1995-2005
9
Main Egyptian Welfare Programs, 1995-2005
10
Defining the Egyptian Welfare System
22
Conclusion
23
References
25
THE WELFARE STATE IN EGYPT
Introduction
Since the 1990s, the literature on the variations of welfare regimes has been growing.
Esping-Andersen triggered the debate when he published his typology of the Western
welfare states in 1990, which was followed by a series of modifications to his original
typology.1 The debate has remained largely confined to the developed world. However,
the welfare regimes of some developing countries have recently been studied, including
Latin American and Eastern European states as well as China and Turkey. As a
continuation of these studies, this paper places the Egyptian welfare state within the
existing typologies. The analysis of the Egyptian welfare state shows similarities with
the Latin American, Chinese, and Turkish models, which suggests the possibility of
forming an analytical category for developing countries’ experiences of welfare.
However, this would require introducing some amendments to the original typology in
order to make it more suited to the welfare regimes in question.
This paper surveys seven main welfare schemes and social safety nets in Egypt. The
analysis focuses on the period from 1995 to 2005, a decade which witnessed the
increasing privatization of the public sector alongside the growing impact of
globalization. It does not overlap with major international shocks like the First Gulf War
and the financial crisis, and thus represents the core of the Mubarak era stability.
Another reason is that detailed data and studies on the Egyptian economy during this
period are readily available. In addition, no major social policy changes with the effect
of restructuring the Egyptian welfare state occurred between 2005 and the end of the
Mubarak regime in 2011. However, when appropriate, the time period has occasionally
been extended. The first section summarizes the relevant literature. The second section
presents a history of the Egyptian welfare state and analyzes its components. The last
section places Egypt’s experience within the existing typology and offers important
concluding remarks about the typology and its possible future extensions.
The Typology of Welfare Regimes
Most of the existing literature on the subject, the applied studies in particular, focuses
on the welfare states in developed countries. A few attempts have been made to
1
Esping-Andersen, The Three Worlds of Welfare Capitalism.
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extend the models to incorporate the experiences of developing countries in Asia, Latin
America, Eastern and Central Europe.2 These have introduced some modifications to
the original models and provided useful insights. To our knowledge, no classifications
have been made of the welfare states in the MENA region or in Africa, nor in most of
the Asian developing countries.
Esping-Andersen bases his classification on two main concepts: de-commodification and
social stratification. De-commodification refers to the degree to which individuals can
maintain a socially acceptable standard of living independently of market participation.3
Social stratification refers to how the welfare state creates a system of strata in its own
right. Social policy may create social divisions, especially if it is restricted to the less
well-off and if it is stigmatizing. It can be an explicit form of class politics and represent
a consolidation of existing divisions among wage earners.4 In addition, de-familialism, a
related concept, describes the extent to which an individual’s welfare is independent of
his or her household status.5 Modern welfare regimes have thus been classified through
empirical investigation of a set of developed countries using these main concepts.
In order to assess the level of de-commodification of a welfare regime, three
dimensions should be studied. The first concerns the rules that govern people’s access
to benefits: eligibility rules and restrictions on entitlements. A program has a high decommodification potential if access to it is easy and the right to an adequate standard
of living is guaranteed regardless of previous employment record, performance, needs,
or financial contributions. The level of income replacement constitutes a second
dimension. A benefits recipient is likely to get to work sooner if the benefit level falls
substantially below his normal earnings, or below the adequate standard of living in the
society. Thirdly, the range of entitlements provided is of crucial importance. The highest
of the entitlement schemes is a social wage paid to citizens regardless of the cause, but
2
Gough and Wood, Insecurity and Welfare Regimes in Asia, Africa and Latin America; Kwon, “Beyond European
Welfare Regimes: Comparative Perspectives on East Asian Welfare Systems”; Barrientos, “Latin America: Towards
a Liberal-Informal Welfare Regime”; Fenger, “Welfare Regimes in Central and Eastern Europe; Choi, Y.-J.,
“Coming to a Standstill?”; Barrientos, “Labor Markets and the Hyphenated Welfare Regime in Latin America.”
3
Esping-Andersen, The Three Worlds of Welfare Capitalism, 37.
4
Lelkes, “A Great Leap towards Liberalism? The Hungarian Welfare State,” 93.
5
Esping-Andersen, Social Foundations of Post-Industrial Economies.
2
THE WELFARE STATE IN EGYPT
it also includes unemployment, sickness, disability, and old age benefits.6 Following
these criteria, three welfare state models were originally identified. The liberal model
offers entitlements where there is demonstrable or abject need by focusing on needs
and on the use of means- or income-tested social programs. The second type of welfare
state, the conservative model, conditions the right to entitlements upon a blend of labor
market participation, financial contributions and the logic of actuarialism. The third
type, the social democratic model, is based on the idea of the rights of citizenship,
regardless of the degree of need or work performance. Eligibility usually depends on
being a citizen of the country or a longtime resident.7 There appears to be a clear
overlap between high de-commodification and strong universalism in the Scandinavian
social democratic model. There is an equally clear coexistence of low decommodification and strong individualistic self-reliance in the liberal Anglo-Saxon
nations. Finally, the continental European countries adhere more to a conservative
model, with a strong corporatist and statist basis, as well as modest levels of decommodification.8
The second basis for classification is the social stratification caused by each of the three
regimes (liberal, conservative, and social democratic). The system of stratification in the
liberal system leads to population division where there is a minority of low-income state
dependents, and a majority of people able to afford private social insurance plans.
Women are encouraged to participate in the labor force, especially in the service sector,
due to the individualistic nature of the society. The conservative model features three
important characteristics of stratification. First, the direct influence of the state is
restricted to maintaining income benefits related to occupational status. Second, labor
force participation of married women is discouraged to maintain the traditional family
structure. Third, the state will only intervene when the family’s capacity to aid its
members is exhausted, which is called the subsidiary principle. This tends to preserve
status differentials. For instance, in its statist version, civil servants have special rights,
while in its corporatist manifestation, social insurance schemes depend on social status.
The role of churches is also highlighted in this regime.9 Finally, the social-democratic
6
Esping-Andersen, The Three Worlds of Welfare Capitalism, 47.
7
Esping-Andersen, The Three Worlds of Welfare Capitalism, 48.
8
Esping-Andersen, The Three Worlds of Welfare Capitalism, 77.
9
Esping-Andersen, The Three Worlds of Welfare Capitalism, 27.
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regime focuses on social solidarity with the aim of maximizing capacities for individual
independence. Women are encouraged to participate in the labor force, especially the
public sector.10
Three main criticisms have arisen against Esping-Andersen’s concept of decommodification and its classifications. The first concerns his classification of the
southern European states of Italy, Spain, Portugal and Greece; while he ignores the last
three, he classifies the first among the corporatists. However, according to other
researchers, the southern European welfare states can be seen as a separate cluster.11
The main characteristics of this group are the proclamation of the right to welfare and
work, the semi-institutionalized promise of the welfare state, the fragmented system of
income guarantees linked to one’s job, generous benefits without an articulated net of
minimum social protections, healthcare as a right of citizenship, particularism in cash
benefits and revenue, financing through contributions and cash benefits, a high
percentage of social expenditure financed through contributions, and low social
expenditure as a percentage of GDP. A second criticism of Esping-Andersen was his
classification of the antipodes as liberal regimes due to their high dependence on
means-tested social programs. However, according to Castles, they have a more
particular and inclusive approach to social protection than the standard liberal welfare
regimes.12 A large part of the population receives some means-tested benefits as a
result of the relatively high thresholds for recipients. Also, redistribution has been
traditionally pursued through wage controls and employment security rather than social
programs. Esping-Andersen reacted to this by adding a fourth category, the radical
welfare state regime. The third criticism regards the gender dimension, missing in the
classification. Gender analysis suggests that there are whole areas of social policy that
the Esping-Andersen typology misses, including women’s exclusion or inclusion in the
labor market, discrimination in social rights, and the gendered division of paid or unpaid
work.13 Orloff argues that in order to understand gender de-commodification based on
10
Esping-Andersen, The Three Worlds of Welfare Capitalism, 28.
11
Leibfried, “Towards a European Welfare State?”; Ferrera, “The ‘Southern’ Model of Welfare in Social Europe”;
Bonoli, “Classifying Welfare States”; Trifiletti, “Southern European Welfare Regimes.”
12
13
Castles, Comparative Public Policy.
Lewis, “Gender and the Development of Welfare Regimes”; O’Connor, “Gender, Class and Citizenship”; Or loff,
“Gender and the Social Rights of Citizenship”; Sainsbury, Gender, Equality and Welfare States; O’Connor, Orloff,
and Shaver, States, Markets, Families.
4
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state-administered social programs, two supplementary dimensions need to be
addressed: access to paid work, and ability to maintain an autonomous household.14
Also, with regard to the family, Daly and Lewis argue that different styles of social
policy have incorporated key aspects of social welfare differently.15
The work of Esping-Andersen has thus triggered a burgeoning literature on the
classification of welfare states. Leibfried, Castles and Mitchell, Siaroff, Ferrera, Korpi and
Palme, and Bonoli have developed similar models based on the original classification. 16
Most of them have adopted an approach and a conceptual scheme similar to EspingAndersen’s, though a few have attempted a different approach to classification. For
instance, Bonoli rejects the de-commodification concept entirely and looks rather at two
other factors: the extent of the welfare state (social spending as a proportion of GDP),
and the way the welfare state is financed (the percentage of social expenditure that is
financed through contributions).17 An important reaction to this wave of defining studies
is a strong criticism of the idea of classification altogether. Kasza argues that most
countries “practice a disjointed set of welfare policies due to the following typical
features of welfare policy making: (1) the cumulative nature of welfare policies, (2) the
diverse histories of policies in different welfare states, (3) the involvement of different
sets of policy actors, (4) variations in the policy making process, and (5) the influence
of foreign models.”18 As a result, as a country’s policies multiply and age, the possibility
of classifying them in a coherent regime becomes more unrealistic.
In addition to these modifications and criticisms, attempts have been made to extend
the model beyond the initially studied set of countries. Kwon and Jones identify an East
Asian or Confucian welfare state regime which is characterized by “conservative
corporatism without Western-style worker participation, subsidiarity without the church,
14
Orloff, “Gender and the Social Rights of Citizenship.”
15
Daly and Lewis, “The Concept of Social Care,” 289.
16
Leibfried, “Towards a European Welfare State?”; Castles and Mitchell, “Worlds of Welfare”; Siaroff, “Work,
Welfare and Gender Equality”; Ferrera, “The ‘Southern’ Model of Welfare”; Korpi and Palme, “The Paradox of
Redistribution”; Bonoli, “Classifying Welfare States.”
17
Bonoli, “Classifying Welfare States.”
18
Kasza, “The Illusion of Welfare Regimes,” 277-280.
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solidarity without equality, laissez-faire without libertarianism.”19 Simply, it’s a
household economy welfare state with a traditional Confucian style. It should be noted
that this model was mostly confined to the Asian Tigers which makes it still largely
inapplicable to many less developed Asian countries.
Esping-Andersen’s typology and its extensions have also been employed to study some
of the welfare regimes in developing countries. In order to study Latin American
countries, a distinction was made between the periods before and after the 1980s.
During the first period, the Latin American welfare regime resembled the conservative
European model in southern European countries.20 Social policy focused on supporting
the male breadwinner of the family through an occupationally stratified social insurance
scheme and job protection. However, it differed from the European model in the sense
that in Europe, social insurance and job protection did not go beyond the formal sector;
therefore the Latin American model, in that era, is described as
“conservative/informal.”21 With regard to stratification, an individual’s type of
employment was the primary factor since formal employment was the gate to social
welfare. After the lost decade, market provision increased which introduced a shift in
the system to a “liberal/informal” model.22 Similarly, the Turkish welfare regime is
characterized by Bismarckian formal social security, with a certain incorporation of
informality, family aid and clientelism. It shows a strong resemblance to the southern
European model, or more accurately the “conservative/informal” model of Latin
America.23 In a different context, Ringen and Ngok have studied the Chinese welfare
regime and drawn attention to the state’s mismanagement, creating a gap between the
policy goals of universalism and the results which may be biased toward certain
groups.24 The hybrid nature of the Latin American and Turkish regimes, their
incorporation of the informal sector, and the consequences of state mismanagement
19
Kwon, “Beyond European Welfare Regimes”; Jones, “The Pacific Challenge.”
20
Barrientos, “Latin America: Towards a Liberal-Informal Welfare Regime.”
21
Barrientos, “Latin America: Towards a Liberal-Informal Welfare Regime.”
22
Barrientos, “Labor Markets and the Hyphenated Welfare Regime in Latin America.”
23
Bugra and Candas, “Change and continuity”; Grutjen, “The Turkish Welfare Regime.”
24
Ringen and Ngok, “What Kind of Welfare State is Emerging in China?”
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observed in the Chinese welfare system are factors that could be relevant in many
developing countries.
Despite these criticisms, the standard typology can still provide relevant insights about
welfare states. As Arts and Gelissen argue, such criticisms are unfair as the typology
meets three important conditions.25 The first is that the typology is a valid and reliable
instrument for classifying welfare states. The second is that the typology is a means to
an end, not an end in itself, since it aims, and manages, to explain cross-national
variations in social behavior and attitudes. The third reason is that the construction of
the theory of the welfare state is still in its infancy. Having said that, it is crucial to point
out that the welfare state cannot be regarded as the sum total of social policies; it is
more than a numerical accumulation of discrete programs.26 Accordingly, this
framework allows for an approximate understanding of welfare states, but a full
understanding of the welfare regime of a country must go beyond the limitations of a
classification scheme.
Historical Background of the Egyptian Welfare State
Since the military coup in 1952, economic and social policies have occupied a major
part of the Egyptian political agenda. Egypt started by adopting state-led development
with a strong focus on fighting poverty and inequality, during the Nasser era. Then, the
economy underwent liberalization through the open door policy implemented during
Sadat’s reign which fostered growth at the expense of economic equality. This shift
represented an alteration of the preferences and attitudes of the state towards
economic and social policies. Economic liberalization continued during Mubarak’s time,
especially when the government resorted to IMF loans and partially accepted its
neoliberal recipe for development, the Economic Reform and Structural Adjustment
Program (ERSAP) in 1991.
The history of the Egyptian Republic starts with the 1952 coup, founding Nasser’s
socialist authoritarian regime that consolidated power for almost two decades. 27 The
Nasser era is marked by a state-led economy, wide redistribution policies, and
25
Arts and Gelissen, “Three Worlds of Welfare Capitalism or More?” 140.
26
Esping-Andersen, “Welfare States and the Economy,” 712.
27
Kassem, Egyptian Politics.
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nationalization. Nasser nationalized major companies and industries, banks, foreign
assets, newspapers and the Suez Canal. The Land Reform Law in 1952 and its
consequent amendments led to widespread redistribution of lands from the rich
landlords to the poor, a policy which played a major role in creating a new middle class.
This came along with asserting the state’s social responsibility towards the welfare of its
citizens and the adoption of a universalistic approach to social policies. Free public
healthcare and education, social services targeting lower income groups, subsidies for
state resources, and labor reforms with regard to minimum wages and labor rights
characterized the new Egyptian state. In addition, the state guaranteed employment for
university graduates and provided national social insurance.28 This led to a high rate of
social mobility in Egypt during the Nasser era.29
The high state expenditures and the lack of foreign investments, however, led to a
slowdown in economic growth by the end of Nasser’s reign. His successor, Anwar El
Sadat, sought a solution in promoting the private sector, foreign investment and
international trade. The shift had a positive outcome on economic growth but a
negative impact on social policy, which created instability. The implementation of Law
65 in 1971 was the first step, providing tax exemptions in order to attract domestic and
international investors.30 This was reinforced by Law 43 passed in 1974, the open door
policy, that “guaranteed against sequestration, nationalization, or transfer to public use
without compensation; it also stipulated that projects based on it are private enterprises
irrespective of the shareholders.”31 This private sector favoritism was not complemented
with progress in social policies. Citizens were left to choose between decreasing their
wages and securing employment, or risking salary instability and unemployment. This
led to rising income inequality and unemployment. State efforts to industrialize were
curbed by shifting to a rentier state with the economy dependent on revenues from
natural resources, the Suez Canal, tourism, and the construction sector. This led to
collective action efforts against the state, mainly because subsidies were cut back,
characterized by the “bread riots” in 1977, which were repressed by the state.
28
Bebber, The Policies of the State and Targeting the Poor in Egypt, 51.
29
Amin, Whatever Happened to the Egyptians? 14.
30
Kassem, Egyptian Politics, 24.
31
Abdel-Khalek, “Looking Outside, or Turning Northwest?” 397.
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As a reaction to this declining social role of the state, two forms of informal social safety
nets appeared. First, many Egyptians migrated to the oil-rich Arab countries and sent
remittances back to their families, remittances that grew from 0.927 of GNI in 1977 to
2.18 in 1981, according to IMF Statistical Yearbook. This raised the effectiveness of the
family as a form of social protection. Second, the gap left by the state represented an
opportunity for religious groups and charities, like the Muslim Brotherhood, to provide
social services to the poor and enhance their social base.32 Although most of the
previous social policies were still in action, the economic changes and population
growth reduced their effectiveness and created a welfare gap that led to an increased
role of informal social safety nets.
When Mubarak came to power in 1981, Egypt was facing many problems including the
failure of the public sector, inflation, foreign debt, budget imbalances, unemployment
and a decline in trade. This pushed the government to cooperate with the IMF and
World Bank in adopting the ERSAP in1991, which established neoliberal economics in
Egypt by focusing on privatization, trade liberalization, and deregulation. Although this
led to correcting some problems, achieving financial stabilization and spurring economic
growth that reached 5 percent, poverty and inequality still prevailed.
Poverty, Inequality, and Social Spending, 1995-2005
Poverty ratios (at a poverty line of $2 PPP) decreased from 26.31% of the population in
1996 to 19.37% in 2000, but the rate of decline then slowed, ending the decade under
study at 18.46% in 2005. This paralleled a similar trend in the poverty gap. The
distribution of poverty in Egypt is uneven: in 2005, three quarters of the poor lived in
rural areas, with 55% in rural Upper Egypt. The majority of the poor work in the
agricultural and construction sectors, which absorb most of the informal workers, with
poverty risks of 26.3% and 26%, respectively.33
For the same decade, according to the World Bank database, the Gini index increased
from 0.3013 in 1996 to 0.3276 in 2000, and then declined slightly to 0.3214 in 2005.
More explicitly, the income share of the highest 10% rose from 26.04% in 1996 to
28.34% in 2000 before declining to 27.64% in 2005. In contrast, the income share of
32
Farah, Egypt's Political Economy, 77.
33
World Bank, Egypt: Towards a More Effective Social Policy.
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the lowest 20% declined from 9.51% in 1996 to 8.95% in 2000 and stayed almost
constant for the second half of the decade. These trends can be understood by tracing
the GDP growth rates that increased in the first half of the decade and then declined,
leading to an increase in unemployment from 9% in 2000 to 9.9% in 2005.
Social spending increased from an average of 7.5% of GDP between 1996-2000 to
approximately 9.8% between 2001-2005.34 For instance, in FY04, approximately 10.8%
of GDP was spent on subsidy systems and social security programs, a figure which
represents more than 30% of public expenditure. The budget for this high spending is
unequally divided between cash transfers (0.12% of GDP), and social development fund
programs (0.18% of GDP), on one hand, and in-kind subsidies on food (1.7% of GDP)
and energy (8.1% of GDP), on the other.35
Main Egyptian Welfare Programs, 1995-2005
Seven components of the Egyptian welfare state can be identified. The first two involve
the large food and fuel subsidies which provide in-kind transfers that are accessible, at
least in theory, to all citizens. The next three include the historical legacy of state
pensions, free health services and free public education. The government has
furthermore adopted targeted programs to combat poverty and provide basic
necessities. Finally, besides these traditional welfare components, employment in the
public sector and informal social networks have played a major role as safety nets that
increase an individual’s ability for de-commodification and shape the social stratification.
Food & Fuel Subsidies
Subsidies of food and fuel constitute the largest welfare program provided by the state
with a budget that makes up around 10 percent of the GDP. This high level of
expenditure is reflected in the low consumer prices of the subsidized goods. The
program lacks eligibility criteria, making it universally accessible to all citizens, and it
therefore has high de-commodification potential. However, given the characteristics of
the subsidized goods, the program tends to preserve the existing social stratification.
34
World Bank and Ministry of Economic Development, Arab Republic of Egypt: A Poverty Assessment Update, 61.
35
World Bank, Egypt: Towards a More Effective Social Policy.
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The subsidy program in Egypt has two main components: food and energy. Food
subsidies provide “cheap, high-calorie foods to protect the income of particular groups,
especially the poor, children, and pregnant mothers.”36 Most of the subsidized inferior
goods like flour and Baladi bread are universally available and accessible to all citizens
without the need to meet any specific administratively monitored criteria. However, as
the subsidized goods are inferior in quality, food subsidies are implicitly targeted to
more disadvantaged groups. Adams has estimated the rates of subsidies in 1996/1997
for Baladi bread, Baladi wheat flour, oil, and sugar to be 59%, 47%, 56%, and 62%,
respectively.37 Although the goal of these subsidies is to tackle poverty, their targeting
outcomes have not been very successful and have varied between urban and rural
populations. In urban areas, total income transfers from subsidized foods as a share of
total expenditure declines with income level, from 8.7% for the poor to 1.4% for the
rich. In absolute terms, the lowest urban quintile receives LE 1.83 per capita per week
from food subsidies versus LE 1.6 for the highest. On the other hand, in rural areas, the
lowest quintile group receives LE 1.62 per capita per week while the top quintile gets LE
1.86.38 This variation in targeting outcomes between rural and urban areas shows that
urban and rural populations may not have the same idea of what is considered inferior.
At the end of the decade under study, the richest quintile was receiving 24% of food
subsidies, while the poor was receiving only 17%.39 Food subsidies thus seem to be
largely targeted in practice despite their universal accessibility, but, unfortunately, they
are targeted to the least needy.
Energy subsidies mostly cover gasoline, kerosene, diesel oil, natural gas, and electricity.
Similarly, there are no preset criteria or limitations for obtaining subsidized energy,
which makes it universally available. The self-targeting goals of the energy subsidy
seem to be less evident than those for food. The richest quintile receives 34% of the
subsidy, and the poorest receives 13%, close to a third of what the wealthy receive.40
In addition, although energy subsidies represent around 75% of total subsidies, they
36
Bebber, The Policies of the State and Targeting the Poor in Egypt, 85.
37
Adams, “Self-Targeted Subsidies.”
38
Adams, “Self-targeted Subsidies,”16-18.
39
World Bank, Egypt: Towards a More Effective Social Policy.
40
World Bank, Egypt: Towards a More Effective Social Policy.
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mostly benefit higher income groups who own means of transportation or industries.
Households consume only 5.5% of total energy from petroleum products, while the rest
goes to energy-intensive industries and generating electricity. Another aspect of
unequal distribution is that the urban population benefits more from the energy
subsidies than the rural population, and within this urban-rural disparity, distribution is
skewed towards the higher income groups. The richest urban quintile takes in 33% of
these subsidies, while the poorest urban quintile benefits from only 3.8%. Similarly, in
rural areas, the richest quintile receives 12.8% of petroleum subsidies while the poorest
quintile gets 5.6%. Despite these inefficiencies due to the unequal distribution of direct
benefits, there is an important indirect universal benefit of the program which has to do
with its impact on price levels in the general economy. Inflation acts as a tax on money
holdings, and has an even higher impact on the poor due to their limited real incomes
which is mostly carried in cash. A complementary way to assess the universal impact of
the subsidies is thus to look at its spillover effects on the average individual’s welfare.
Cutting subsidies translates directly into an increase in domestic energy prices, and
subsequently in the prices of all goods and services. For instance, removing all the
energy subsidies and selling products at the domestic cost is expected to raise CPI
inflation by 36.9%, which would cause households to lose around a third of their real
incomes. If subsidies were reduced by 75% through limiting them to only household
consumption, the level of consumer prices would still increase by 27.6%.41 These
simulated scenarios point to the indirect impact of subsidies in preserving individuals’
real income, and thus their welfare, by restraining inflation. In a sense, the subsidy
system results in a certain level of protection from market price fluctuations in basic
commodities essential for an individual’s welfare, and this phenomenon is universal.
In general, the subsidy program reinforces the existing social stratification due to its
unequal distribution of benefits and poor targeting. The poorest quintile of the
population receives only 16% of the welfare and subsidy resources, less than their
share of the population, while the richest quintile receives 28% of the resources. In
other words, the current subsidy system gives almost twice as much to a rich person as
to a poor person.42 There are some reasons for this stratification. Geographical
constraints lead to unequal access to benefits; for instance, fewer fuel stations and
41
Abouleinein, El Laithy, and Kheir-El-Dein, “The Impact of Phasing Out Subsidies,” 13-19.
42
World Bank, Egypt: Towards a More Effective Social Policy.
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subsidized bakeries are located in rural areas. Also, the energy component is most
highly subsidized, and it is mainly consumed by affluent groups.
Based on the lack of eligibility criteria and the scope of potential direct and indirect
benefits it provides, the food and energy program can be described as a universal
scheme due to its high de-commodification potential. However, due to its social
stratification impacts, this concentration could be challenged and rather oriented
towards a corporatist form of conservative welfare. The in-kind transfers allow for the
more affluent social groups, with geographical advantages and energy-dependent
businesses, to benefit more from the program than the poor. The net result is the
preservation of existing social stratification.
Social Security Pensions
In 2004-2005, compared to an average of 30% in the MENA region, the Egyptian
pension system covered 93% of formally employed workers and approximately 7.5
million pensioners and their eligible survivors, according to official records. It protects
against risks that could prevent work such as disability, old age, and death. This
coverage is legally required for government employees, public and private sector
workers, self-employed workers, and casual workers, under Laws 79/1975, 108/1976,
and 112/1980. There also exists an optional pension system for Egyptians working
abroad. Individual contributions – covering pensions, healthcare, and other programs –
is high for government employees as well as public and private sector workers: up to
40% and 35% of workers’ basic and variable salaries, respectively. This is much higher
than in the other MENA countries like Algeria, Libya, Tunisia, Morocco, and Jordan
where it ranges from 8 to 14 percent. In order to be eligible for benefits, a worker has
to have at least 10 years of service on a basic salary and 20 years on a variable salary,
with a maximum of 36 years on a basic salary. It has an accrual ratio of 1/45 of the
worker’s average monthly salary throughout the last two years of his/her service, at a
maximum rate of 80 percent. The contribution of casual workers (who represent 27%
of the current workforce) is LE 1 per month, while the retired worker receives LE 80 in
monthly pension.43 The system requires 20 years of contributions for the individual to
be eligible for early retirement. The retirement reduction rates increase if the person
retires at a younger age. However, this is far less than its actuarial equivalent.
Moreover, the ratio of pensioners to contributing workers in the pension system is high
43
Helmy, “Egypt’s New Pension System,” 3-10.
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ARAB CENTER FOR RESEARCH AND POLICY STUDIES
(39%) compared to the MENA average (27%), Latin America (25%), and Asia (11%).
The number of new entrants is decreasing while the number of pensioners is increasing,
which leads to a widening deficit in the program. As a result, although the current
pension system was supposed to be fully autonomous, it is increasingly dependent on
government support to pay the accrued pension benefits. This is due to the lack of an
automatic mechanism that protects the value of pensions from erosion over time, and a
weak link between individual contributions and actual individual pensions. Also, the
government has been funding pension increments since 1987. The public treasury
contribution to pension liabilities reached LE 8.4 billion in 2005, in addition to its
contributions as an employer.
Despite the program’s wide coverage and the government’s commitment to it, the large
informal employment sector remains outside of the pension umbrella. According to the
Central Agency for Public Mobilizations and Statistics (CAPMAS) informal employment
reached 8.3 million people in 2004, and rose to 9 million in 2005, representing 47% of
total employment. Women make up around 20% of informal workers, representing
48% of total female employment. This means that half of female employment is
pensionless. Informal employment is defined by the nonexistence of legal contracts and
the size of the private enterprise. Most informal employment is found in the agriculture
and construction sectors, which have high poverty rates. The state pension program
thus excludes almost half of the total employment in the economy, almost half of
female employment, and most of the poor workers.
The pension system in Egypt is tied to the employment of the individual, his/her
previous contributions, and his/her age and health conditions. In principle, it should
cover the majority of workers. In practice, the coverage umbrella is much smaller since
it excludes the informal sector, or half of Egyptian workers. Accordingly, it has
moderate de-commodification ability. Its stratification outcome maintains the privileges
of formally employed workers, which is a characteristic of conservative welfare regimes,
especially in their statist form.
Health Care
The services of the Ministry of Health are provided to all citizens mostly free of cost.
However, public health care provision faces some challenges. The healthcare budget in
Egypt is underfunded, amounting to around 3.8% of GDP in 2000, compared to an
14
THE WELFARE STATE IN EGYPT
average of 5.3% for countries of similar per capita income. 44 Between 1994 and 2002,
public health spending increased and then started to decline. In 1995, public
expenditures were skewed towards the richest quintile which received 23.6% compared
to 16.4% received by the poor. Moreover, there is an unwise allocation of financial
resources. For instance, in spite of the prevalence of communicative diseases, 56% of
the budget was allocated to curative services.45 This underfunding and misallocation of
resources is reflected in the general performance of the public health sector which is
commonly blamed for its low standard.
Another dimension of the program has to do with the coverage, structure, and
contributions scheme of the health insurance program. In principle, Egyptian public
health insurance aims at achieving universal coverage, but it is still far behind its goal.
Between 1994 and 2008, the percentage of the population insured by the Health
Insurance Organization increased from 35% to 55%. In this, Egypt lags far behind
Tunisia (99%), Iran (98%), and Jordan (83%).46 Despite this fact, the poor fared better
than other groups in Egypt, as 80% were covered in 2002.47 It is also important to note
that there is gender disparity with regard to access to health services and health
insurance. Abou Habib has shown that women have greater difficulty to access
insurance coverage even when they are employed in the same sector as men. 48 The
gender gap also has a rural-urban dimension as women in southern and northern areas
and in border villages have very poor or even no access to health services, especially
among female-headed households.49 Moreover, the Egyptian public health insurance
system is highly fragmented and provided through various laws covering different
population groups, with separate rules for payment of premiums and management of
benefits, which leads to inefficiencies. It also provides broad and generous benefits
packages including inpatient care, plastic surgery, and treatment abroad. With regard to
contributions, the role of the Health Insurance Organization as a financing agent
44
Galal, “Social Expenditure and the Poor in Egypt,” 3.
45
Galal, “Social Expenditure and the Poor in Egypt,” 8.
46
Ministry of Health, Egypt, and Health Systems 20/20, 13.
47
Galal, “Social Expenditure and the Poor in Egypt,” 8.
48
Abou-Habib, “The Right to Have Rights.”
49
Abou-Habib, “The Right to Have Rights,” 445.
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declined from 12% to 8%, while the share of out-of-pocket costs within total health
spending rose from 51% percent to 60 percent. In general, the main source of fund to
the Egyptian health care system is the household funds that increased their share from
51 percent in 1994/1994 to around 60 percent by 2001/2002 before it started to
decline. This was paralleled with a decline in the share of Ministry of Finance, the
second main contributor, from around 35 percent to approximately 29 percent (Ministry
of Health)
Despite the insufficient health insurance coverage, Egypt has managed to achieve great
success in certain health indicators. By 2001, public health expenditures allowed
immunization to be extended to 98.3 percent of the population, and the number of
physicians per 1000 to be increased. There has been a notable improvement in life
expectancy at birth and mortality rates in both urban and rural areas, with a greater
pace of improvement in poorer regions.50
The healthcare system has managed extensive achievements in some aspects, and is
still lagging behind in others. In principle, it is a universal system of coverage. In
practice, coverage is still limited and gender biased, but it is constantly moving towards
universality. The insurance system’s high individual contribution rates are balanced with
generous entitlements. In principle, the system provides some sort of basic health
services to all the population based on citizenship, and thus can be classified as a
universal welfare program.
Education
Egypt has a public education system that provides free education to all citizens at all
educational levels. There are no eligibility criteria to receive the educational services
provided by the state, which extend to the higher education level. Although Egypt is still
far from eliminating adult illiteracy, it has managed to achieve high enrollment rates for
primary education, which is promising in terms of future literacy. The gender and
rural/urban gaps have also been narrowed; however, these two dimensions are still
problematic in terms of attaining universal access to education.
The ratio of public expenditures on education to GDP increased from 3.1% in 1990/91
to 4.6% in 1999/2000 and remained stable for the rest of the decade under study.51
50
Galal, “Social Expenditure and the Poor in Egypt,” 5-9.
51
Galal, “Social Expenditure and the Poor in Egypt,” 3.
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THE WELFARE STATE IN EGYPT
This rise has been reflected in educational indicators. Adult literacy rates went up from
55.6% in 1996 to 71.4% in 2005. Gross primary enrollment increased to almost 100%
by the end of the decade. However, the gross enrollment level for all levels combined
(except pre-primary) was still around 75%, according to the World Bank.
Improvement in education has been accompanied by the reduction of disparities
between different social groups. According to the World Bank, the gender parity index
for adult literacy improved during the decade to increase from 0.65 in 1996 to 0.71 in
2005, but the gender gap remained wide as the female literacy rate was 59.4%
compared to 83% for males in 2005. The gender parity index for primary gross
enrollment improved from 0.88 in 1995 to 0.94 in 2005. Gender parity in tertiary
education also improved to achieve 0.83 in 2005. In primary education, as noted above,
there is perfect gross enrollment for both males and females. The net attendance rate
for primary schooling was higher for males than females, but the gap was narrowed
during the decade. The same positive trend applies to the disparity between urban and
rural areas. The Gini coefficient of average years of schooling was higher for females
than for males (0.59 versus 0.41 in 1995), but it went down at a higher pace for
females during the decade to be 0.5 to 0.35 in 2005. Similarly, the Gini coefficient of
average years of schooling was higher for rural areas than for urban ones (0.59 versus
0.39 in 1995), but it went down at a higher pace for rural areas during the decade to be
0.49 to 0.33 in 2005.
Despite these positive elements, quality is still a major challenge in public provision of
education. Large class sizes and the low quality of educational facilities are prevalent
problems in the public school system. The issue of quality in the Egyptian public school
system has led many families to send their children to private schools or private
tutoring classes. This has led to a high share of personal expenditure on education:
19.7% among the poor groups, according to the Institute of National Planning. The
growing reliance on private tutoring has placed heavy socioeconomic pressures on
households
The Egyptian state provides universal educational services to all its citizens without
demanding any contributions, except for taxes, while offering relatively generous
educational entitlements. Although quality is problematic, basic educational needs are
met by the state for all of its citizens. The gender and urbanization disparities are being
tackled effectively. Therefore one may approximately classify Egypt’s educational
system as universal.
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Targeted Programs
The state has 78 social development projects which target families and children,
including investments in nurseries, libraries, youth clubs, centers for rural children, and
early childhood development projects. Some programs are also targeted at empowering
underprivileged groups. For instance, the substitute care family program seeks to
reduce child labor and extend care to working children. The family cottage industry
project intends to develop the economic resources of low-income families. In 2005, this
program served 1.8 million people, with over 12,000 families joining in 2006. The
Nasser social bank provides aid and loans to the poor. The national social housing
program provides residential units for low and middle income Egyptians. Moreover, the
national program for improving the poorest 1000 villages implements public works
projects to help those in severe poverty. This was developed using demographic
poverty indicators such as employment, health, utilities, and education. It targets one
million of the poorest households with the aim of providing basic needs. Similarly, the
national program targeting poverty geographically aims to address the standard of
living of the severely poor. It intends to develop “the formal education infrastructure,
conduct literacy classes, develop health and new housing units, provide potable water,
sanitation, electricity and roads, and improve environmental conditions in areas of
highest poverty and greatest need in Egypt,”52 It has a pilot phase cost of LE 3.4 billion
and serves 151 villages. Finally, the new cities development program has served 2
million people by providing training programs, funding, and entrepreneurship among
disadvantaged groups.53
These programs have high stratification consequences due to their targeted nature.
Their de-commodification potential should be analyzed individually for each program,
which would be out of the scope of this study, but it can be roughly described as
moderate. The most important observation in this regard is that these programs focus
on the family as the main social unit rather than on the individual, which is a
characteristic of conservative welfare regimes.
52
United Nations Development Program, Egypt Human Development Report 2005.
53
Bebber, The Policies of the State and Targeting the Poor in Egypt, 102-104.
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THE WELFARE STATE IN EGYPT
Public Employment
Public employment is a non-traditional form of welfare provision by the state. It is
considered one of the strongest historical safety nets in Egypt, dating back to the
Nasser era. It has some advantages that make it socially appealing. First, public
employment is relatively secure due to the very low incidence of firing, compared to the
private sector. Secondly, it opens the door to several other economic and social
benefits. For instance, most civil servants as well as army and police officers get cash
and in-kind benefits around the year, along with access to social clubs as well as
specific pensions and healthcare systems. Finally, the fact that the public sector is
oversaturated leads to low workloads, enabling most civil servants to gain additional
sources of income alongside their stable jobs.
In addition to these advantages, Assaad has shown that wages in the government and
public enterprises are higher than those in the domestic private sector.54 Said
elaborated on this observation using 1998 to 2006 labor surveys, and found that
bonuses are given to public sector workers, irrespective of gender. Bonuses increased
from 1996 to 2006. El Ghamrawy and Amer offer a justification for this, arguing that the
public sector plays a social rather than merely economic role.55 Public sector wages do
not depend on education level, and artificially high salaries may be related to the social
and political role played by this sector. On the other hand, wages in the private sector
are more aligned with education and related skills.
Moreover, the public sector is administered and directly supervised by the government,
and so it benefits from “formality,” which the private sector does not widely enjoy. The
formality differential is reflected in wages. El Ghamrawy and Amer have classified
employment sectors into government, public enterprise, foreign private, joint-venture
private, and domestic private.56 Government wages are significantly above domestic
private wages, and they are slightly below the other two private employment sectors.
The wage difference between the public and domestic private sectors can be explained
by the latter’s widespread use of informal employment. Informal workers are likely to
be denied most of the wage and non-wage benefits that formal workers enjoy. Around
54
Assaad, R., “The Effects of Public Sector Hiring and Compensation Policies on the Egyptian Labor Market.”
55
El Ghamrawy and Amer, “The Public Wage Premium in Egypt,” 23.
56
El Ghamrawy and Amer, “The Public Wage Premium in Egypt,” 6-7.
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75.1% of workers in the domestic private sector do not have a legal contract, while
97.6% of government workers do. Informality is also closely linked with the size of the
company. Around 61% of informal workers are employed in small businesses of 1-4
people, and 15% in firms of 5-9 people. Since the private sector contains 69.7% of the
employed workforce, informal labor has become a serious problem, and this makes
public employment an attractive option. That is, the inability of the government to
efficiently regulate the labor market and private sector employment has made public
employment a natural recourse for citizens seeking to protect their legal rights as
employees.
In a country with high unemployment, limited administrative capacities, and at an early
stage of industrialization, public employment is a strong and effective safety net.
Although it also comes with benefits, the social welfare and job security of the workers
remain strong reasons for desiring it. It provides formal contracts to its workers as well
as an open door to other benefits, which creates social stratification in favor of public
sector workers. Accordingly, it can be classified as a conservative statist welfare
program. Informal Welfare Networks
In a highly collective society with a strong religious basis, informal welfare networks,
including the family and religious institutions, play a major role in providing social
services. The extended family provides social protection such as mediation in conflicts,
substitution for parental loss or absence, preferential employment of kin, and aid for
the costs of healthcare.57 In lower income and rural areas, families are involved in
almost all aspects of an individual’s life. They participate in educating children,
childrearing, securing employment, negotiating the bureaucracy and the political elite,
establishing and maintaining businesses, saving money, distributing resources and
information, securing credit, and organizing migration.58
Religious institutions, Islamic or Christian, are also resources for many low-income
families seeking social support. Religious charity donation practices such as zakat and
waqf are important sources for funding health and educational projects for the poor.
Zakat and waqf have helped to fill some gaps in social protection left by the
government. For instance, the 57357 Hospital for children’s cancer, the Magdy Yacoub
57
Okasha, El Kholy, and El Ghamry, “Overview of the Family Structure in Egypt,” 163.
58
Singerman, Avenues of Participation.
20
THE WELFARE STATE IN EGYPT
Institute for heart surgery, and the cancer institute are examples of major health
projects that depend heavily on donations and provide their services free of charge to
low income groups. The importance of religious institutions increased significantly
during Mubarak’s time. Islamic endowments declined during the Nasser era due to state
redistribution policies and strong state control of welfare. They were revived by a set of
laws under Sadat: the state encouraged the revival and expansion of the waqf system
in order to open the door to “Islamic welfare” based on “solidarity between Muslims,”
according to the Egyptian Parliament. Many private mosques and religious-based charity
organizations began to provide social services like education and health, a trend that
grew beginning in the seventies. At the end of the eighties, Mubarak asked the Ministry
of Waqfs to launch a program to expand small private mosques into cathedral mosques
with community centers (Jami) by expanding their provision of social services such as
student trainings, professional trainings, and health services. In the nineties, a
movement led by many intellectuals and professionals called for the revival of the alwaqf institution as a traditional private welfare provider independent of the state.59 In
1992, 5,671 religious non-profit organizations provided social services to around two
million families. By mid 1990s, more than 4,000 zakat committees were established in
mosques to mediate between donors and recipients. Islamic organizations constitute
around 34% of all non-profit organizations in Egypt. Zakat contributions have been
increasing both in terms of the number of contributors and the proportion of income
donated.60
More controversially, other informal networks based on clientelism, cronyism, and
nepotism are prevalent sources of social services. In Egypt, this form of networking is
commonly called “wasta,” signifying “the intervention of a patron in favor of a client in
an attempt to obtain sources or privileges from a third party” regardless of the nature
of the relationship between the patron and his client.61 Electoral politics in Egypt during
the decade under study was centered on the ability of the candidate to provide
clientelistic favors to his voters. This includes facilitating public housing, employment,
and licenses for businesses. Voters choose the candidate who can deliver services, not
59
Pioppi, “From Religious Charity to the Welfare State and Back,” 4-6.
60
Anheier and Salamon, The Non-Profit Sector in the Developing World, 145-146.
61
Mohamed and Mohamed, “The Effect of Wasta,” 412.
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necessarily the one who best legislates or supervises the government’s performance.62
Elections are perceived as a season for access to state resources. Cronyism and
nepotism are also prevalent for similar reasons. Research has shown that most people
in the Arab world use wasta and view it as having a positive impact on their career.63
More interestingly, wasta is viewed more positively by lower socioeconomic groups than
by affluent ones, which suggests that it has a particular importance to them. 64 In a
country with strong corruption, inefficient bureaucracy, high social inequality, and
rampant poverty, citizens will try to use all possible means to gain access to state
resources.
Family, religious institutions, and wasta networks are profound social safety nets in
Egyptian society, and provide lifetime protection. In many cases, they act as more
effective safety networks than governmental ones due to their relative ease of
accessibility and their widespread availability. Although they face the problem of free
riders, these systems are strengthened because traditional ethical and religious codes
favor them. Family-based welfare networks, including wasta, resemble those of the
southern conservative welfare model, especially with religious institutions focused on
maintaining the traditional family structure and gender roles in society.
Defining the Egyptian Welfare System
Through analyzing the different welfare schemes in Egypt, it is possible to place Egypt’s
experience within the existing welfare regime typology. The Egyptian welfare regime
resembles the conservative southern model with respect to the following factors. First,
there exists a semi-institutionalized promise of a welfare state; that is, according to the
Egyptian constitution, the state’s responsibility to its citizens includes guaranteeing
equality of opportunity to all Egyptians (Article 8) and guaranteeing cultural, social, and
health services (Article 16). Furthermore, Article 7 states that social solidarity is the
basis of Egyptian society. The constitution also asserts that both work and education
are rights guaranteed by the state (Articles 13 and 18). Second, generous benefits are
62
Lust, “Democratization by Elections?” 125.
63
Dobie, Grant, and Knudstrup, “Attitudes and Perceptions of the Role of Wasta”; Whiteoak, Crawford, and
Mapstone, “Impact of Gender and Generational Differences.”
64
Mohamed and Mohamed, “The Effect of Wasta,” 421.
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THE WELFARE STATE IN EGYPT
provided by many of the programs, but an articulated social protection net is lacking.
Third, healthcare and education are acknowledged as rights of all citizens. Finally, there
is a significant role played by the family and religion.
On the other hand, the Egyptian system overlaps with the Latin American model in that
formal employment is a doorway to social benefits, while the large informal sector is
excluded from social insurance and job security. In addition, it corroborates the
observation made in China that state mismanagement of social welfare programs, such
as the food and energy subsidies, creates policies that are biased towards certain
groups. Moreover, the Egyptian system clearly has a strong universal component in
programs like education and healthcare. If one takes into account the indirect benefits
of the subsidy programs in terms of controlling inflation, one could claim that they are
also strongly universal, especially in that they constitute the largest component of the
Egyptian welfare system. However, if one considers only their direct benefits and
acknowledges the intrinsic eligibility criteria of the subsidized goods, this claim could be
challenged. For its part, the market plays a marginal role in the Egyptian welfare state,
which denies it any significant liberal aspect. Finally, similar to the Turkish model,
clientelism and wasta networks play a major role in terms of access to social services,
highlighting the role of informal social networks. Given all these factors, one may say
that the Egyptian model belongs to the category of “conservative/informal” welfare
regimes, similar to the Latin American model before the lost decade, and to the Turkish
model. This category would be the closest approximation.
Conclusion
The analysis of the Egyptian welfare state points to the possibility of establishing a new
category of welfare regimes that incorporates some of their common properties. The
similarities between the Egyptian system and the Latin American, Turkish, and Chinese
models support this claim. Extending the standard typology to developing countries in
this way implies that the following five points must be carefully considered. First, there
is an evident gap between the government’s stated goals and its actual achievements
on the ground. Mismanagement, weak monitoring, inefficient allocation of resources,
and corruption tend to widen this gap. This relates to the importance of evaluating the
quality of service, especially in the context of developing countries. For instance,
universal provision of education might be guaranteed, but with low quality, its impact
on welfare is questionable. Both management and quality assessment aspects must be
clearly imbedded in the classification criteria, detailing clear quantitative methods with
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which to evaluate them. Secondly, this analysis reinforces the relevance of the gender
dimension to a study of the welfare state in developing countries, where gender
disparities can be widespread. Disparities in levels of urbanization play a similar role to
gender, and must also be taken into account; the disparities between urban and rural
areas in Egypt were found to be severe in some programs due to the state’s focus on
cities. Thirdly, the informal sector’s size and its mechanisms of operation must be
analyzed, to assess its impact on welfare provision. Fourth, traditional social safety
institutions like the family and religious organizations must be included in a more
systematic way in analyses of welfare regimes, due to their prevalence in developing
countries and their large impact on de-commodification and social stratification. Fifth,
the impact of clientelism and patronage networks needs to be thoroughly taken into
account according to their de-commodification and stratification consequences. To
conclude, the typology developed by Esping-Andersen and others provides a useful
analytical framework; however, to be widely used in understanding the welfare regimes
in developing countries, some additional adjustments will be needed.
24
THE WELFARE STATE IN EGYPT
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